AIG

i've been trying to understand what caused the financial crisis to happen. wish i had more time to read what has been posted to the blogosphere. a great post over at The Big Picture discussing AIG is here; i'm still reading it. it suggests a definition of "too big to fail": having as your creditors 25 major u.s. financial institutions; 7 countries (surely china is #1 on the list); $20B of assets of u.s. cities and state municipalities; and money market funds.

if you have time to only read one article, read AIG's rescue has a long way to go by Carol Loomis of Fortune magazine:

...on Monday, Sept 15 the government decided it could not or would not rescue Lehman but instead would let it go bust. Bankruptcy court records have since shown that Lehman had 900,000 derivatives and financial contracts with other parties, and each creditor holding these realized on Monday morning that its check wasn't going to be in the mail. The hazy financial concept called "systemic risk" immediately became hard reality. Credit markets froze worldwide and stayed frozen on Tuesday, which is the day when AIG was headed toward bankruptcy but didn't get there. The theory around, which all of financialdom seems to accept as received truth, is that the government realized by Tuesday that it had erred grievously in letting Lehman go down and knew that it could not compound the error by allowing AIG to fail a day later.

oh yeah, and china called: they're wondering if they'll get their money back.